I know there are a few computer types here, possibly contractors. I've always been a permie but now that I'm, having to look for a job again I think the only real chance of employment is as a contractor.
What's the best way to go about this? Set up my own company, or don't I need to go that far these days (sole trader?)? I had some guys who worked for me that we paid through umbrella companies, but that didn't seem to bring the tax benefits I've heard about. I don't expect to be earning huge amounts, and am expecting short term contracts rather than long term ones, so don't want something which will be vastly expensive or time consuming to administer.
Any advice/links will be gratefully received.
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For short term contracting, no need to open limited company or even sole proprietership.
You may just go thru an umbrella company.
Check here - forums.contractoruk.com/ for advice on contracting.
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I went umbrella company when i used to contract. IR35 meant it wasn't really worth my while to go the LTD company route and for what i was earning anyway, it would have unlocked no more than a couple of grand a year even with paying a v good accountant.
It was very simple and i took the package deal with my insurance (i forget what it's called, fancy sounding name), again probably could have found my insurance cheaper elsewhere but it was all 0 hassle.
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Well this is the kind of question I've been dealing with this year as well. To me using an umbrella company gives you the pay of a permie and the job security of a contractor, it should be less hassle though.
Just about every contractor I've ever worked with has used a limited company, some pay an accountant to do all the invoicing/paperwork, others do that themselves and just use an accountant for their tax return & company account filings. As with many things you can reduce personal hassle by paying someone else to deal with it.
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Some contractors use an umbrella company that pays them a basic wage and they take the rest as loans for training. These loans are never repaid. Sounds a dodgy approach to me but is apparently legal. These companies are based say in Jersey or Guernsey.
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I wouldn't touch an umbrella company. They encourage their contractors to make claims for things that are not claimable (like lunch). So once you are on an umbrella's books you are prime target for an HMRC inquiry.
Umbrellas make constant reference to "HMRC approved" deductions (for things like lunch) when they are lying through their teeth. They are inherently dishonest setups.
As for being based in Jersey/Guernsey, the approach relies on the individual lying through their teeth to suggest that they're not working in the UK and so are not subject to PAYE/NI. The reality is that despite being on the payroll of a Jersey company, you are a UK employee of a UK company, and therefore subject to income tax, national insurance etc. etc.
"Section 689 ITEPA 2003
Where an employee works for someone in the UK but is employed and paid by an employer outside the UK the person in the UK for whom the employee works is treated, for the purposes of the PAYE regulations, as making any payments of or on account of PAYE income.
The UK person is required to operate PAYE on awards of readily convertible assets in the same way as on cash.
For further guidance see EP8077."
Lying to the taxman eventually comes back to haunt you. No reputable employer with his head screwed on would allow a Jersey umbrella to be your "employer" as the PAYE liabilities would fall on the employer. Don't touch, even with a very, very, very long bargepole. It is NOT legal.
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How naive of me. It's much worse than I thought.
Apparently these companies loan you the money for several years. And then they ask for it back so you're left with nothing... and no leg to stand on.
Alternatively, of course, the loan is waived when you stop working for them, and then income tax is due on the loan waived. Problem is that whilst you might have been saving it at 20% or even 40%, chances are with several years' salary arriving all at once that you might very well be taxed at 50%.
(And of course the loan is a benefit in kind, so you are taxed on the interest you haven't paid, and they don't withhold PAYE as they claim you're working outside the UK, and then HMRC catch up with you and demand tax, interest and penalties... plus you'll end up having to pay the income tax you were always going to have to pay anyway.)
rtj if you know anybody on one of these schemes, tell them to get out now, employ an accountant, and get themselves sorted with HMRC.
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Mapmaker, its their problem if it comes back to bite them. I disapprove of avoiding tax when it should be paid. They benefit from our health service, roads, etc. and pay very little towards it. But get maybe £500 per day contracting! No I won't warn them. I told them years ago it all sounds too good to be true.
As I say they typically pay themselves via this company a very low wage but take home via the 'loan' a large amount per annum.
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The umbrella companies I was paying people through were not quite in the same league and were mostly (I think) above board. I paid the whole daily rate to the company and contractor was an employee of that company, so got paid a salary net of tax and NI. They did have allowable expenses but the work they were doing restricted this to ravel and parking I think. (These were "low paid" contractors). The umbrella company charge them something like £30 a week for the service.
Having had the Revenue checking my mileage claims twice in the past 10 years (as an employee!) I would not want to put myself in the position of having a full blown investigation - I want to be legal and above board.
Last edited by: smokie on Thu 23 Dec 10 at 19:22
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I did some contracting for a short while, and was told to use an umbrella company. Having investigated it I refused to be paid that way. They generally encourage a very "liberal" approach to expenses claims and I'd be astonished if the average umbrella contractor doesn't have the joy of an inquiry within five years. The penalties on tax underpayment these days are far more painful than they used to be.
RTJ, if you do tell your chums then they'll be paying tax, though I guess it's not very much if they're earning about what you say.
Last edited by: Mapmaker on Thu 23 Dec 10 at 19:49
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Sole trader. I believe that most of the benefits of Ltd. Have been eroded. You earn. You pay. Seemples, innit!!
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Seconded Martin. Also worth getting yourself VAT registered even if you don't initially anticipate exceeding the VAT threshold especially now it's going up to 20%. You can claim the VAT back on any work related expenditure. Most companies you deal with will be VAT registered too so they won't mind paying your VAT because they can also claim it back. Different story if you feel your customers would be private individuals though.
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I have just come out of vat having been in for nigh on 30 years. Turnover miserable for the last six quarters, but that's not all down to the financial climate. I could well be back in shortly if things take a turn, but I am unsure if I want it or not. Bottom line counts. Turnover means jack all.
M
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One reason for VAT registration is it confers legitimacy on some types of business.
In our very own field of motoring, a new car warranty can be kept up by servicing at a non-franchise garage, provided the garage is VAT registered.
Were I looking to give work to a builder, I wouldn't care if he was VAT registered or not.
Other considerations would take precedence, such as reputation and the cut of his jib.
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I had to sell the Crane and the Jib went with it.
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I contracted for almost 10 years, and it was worth it. But whilst permie salaries have gone up, contracting rates have been stable, and costs have gone up, particularly IR35. Plus if you contract, you probably will have to live away from home, at least during the week, so add £6K per year for accommodation. And that comes out of after tax earnings. Then allow £1K per year for an accountant. And you may have to follow IR35. Don't believe the rubbish from brollies, they do not protect you. The IR examine how you work to determine whether or not you are a 'disguised employee' as they call it. If you get paid per hour, work on site, use company equipment, and cannot be replaced, then you are subject to IR35. There are ways around it. Buy your own PC, bill per job, but make sure the hours worked x required hourly rate matches total amount. One company I worked for operated a scam with an overseas company acting as the brollie. Anyway, to find work, go to jobserve.co.uk. Once you find a contract, find an accountant, and he'll advise you on how to create your own company. Contracts can be short, or long, depends. Sometimes they are cancelled as soon as you arrive. I had one for 5 1/2 years, I know someone whose contract lasted something like 14 years, he only went permie because he could not get sufficient security clearance as a contractor. But I know some who were kicked out PDQ. Anyway, you will need to be a limited company if you contract due to earnings. As I say, ignore brollies. And keep accounts for at least 7 years. If you go outside IR35, keep enough money spare to cough up if the IR find against you. It happens. They are absolute *****s.
Now if you are an Indian outsourcing agency, and you ship in loads of Indian engineers, do they pay IR35? No. They just take ~60% of the engineers earnings, and send it straight back to India. If you are a UK contractor, do you pay IR35? Probably. Fair? Mmmm. Oh and if you are an Indian engineer, and you have a phone interview, are you tutored on the likely questions by the agency that has already had people interviewed by the same company? Yes. If you are a UK engineer, do you get tutored. No. And I know several people, one being me, who have experienced direct racism from Indians working for UK companies e.g. "English people are not good enough to be employed", so they give the job to their friend with no experience. That is the sort of carp you are up against as a UK contractor which is why in some sectors UK staff (white, brown, black) are few and far between.
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I'm (technically) a contractor. The accountant creams off 3% of my income and does everything. I keep hold of receipts and fill out an expenses form every month. It's lucrative but I'd still prefer to be a permanent employee.
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>> I'm (technically) a contractor. The accountant creams off 3% of my income and does everything.
Kick him into touch tout suite.
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>> I'm (technically) a contractor. The accountant creams off 3% of my income and does everything.
>> I keep hold of receipts and fill out an expenses form every month. It's lucrative
>> but I'd still prefer to be a permanent employee.
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That sounds pretty similar to the figures I was quoted for that sort of service.
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Percentage. What rubbish!
Last edited by: VxFan on Sat 25 Dec 10 at 01:47
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Agreed, All you need to do is keep good, simple, clear records yourself of your income and any work related expenditure. You can fill in your own tax and VAT returns if you have time but even if you prefer to use an accountant it's only necessary to give your records to them once a year for checking. They'll prep your tax return from that and you pay a lump of tax retrospectively once in January and an interim payment in the summer. Never paid more than £600 a year for accountants fees. VAT is simply a case of filling in a quarterly return. Once you get the hang of it it's about an hour's work once a quarter. The 3% sounds like a complete rip-off.
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I have made a simple excel sheet to deal with VAT. Her indoors refuses to use it, but in her defence she is a Woman! VAT is NOT NOT NOT a problem if it suits your business.
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A pal has his own Ltd Contracting Company. Share capital issued £1, Directors 1, Employees 1.
VAT registered and turnover under VAT Limit or Small Business VAT scheme (T/O less than ~ £170K IIRC).
He charges VAT @ 17.5%(20% in a week's time). He has very little VAT purchases - accountant £100 / month, computer every 2 years, has no real business expenses...........
His VAT remittance to HMRC every quarter is at rate o 12.5% - i.e. he makes 5% on his turnover less the odd VAT payments he makes. In a year he has 3/4 customers only, sometimes 1.
The £100 / month accountant pays him - Accts, VAT, Own Tax return is ree is Accts & VAT are covered.
He recently moved home and Banks and BS do not seem keen on 1 man bands even with immaculate Credit History and 7 years rising income in accounts..............took 3 months to get a mortgage cleared 50% deposit and at 1.5 x combined household incomes...........authorised accounts were key to acceptance.
Where most of your customers are private punters and turnover is say <~£70K / year and evenly spread do not register VAT as it will increase your invoice prices and accounts/VAT work. In most businesses where bulk o customers are VAT registered it will pay you to register and do the paperwork.
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>>. In most businesses where bulk o customers are VAT registered it will pay you to
>>register and do the paperwork
UNLESS the customers make exempt supplies e.g. banks, as they cannot reclaim their VAT either.
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Employment - contracting - movilogo
